Friday, 16 April 2010 15:57
The SEC has charged Goldman Sachs with fraud this morning. Allegedly, Goldman relied on hedge fund Paulson & Company to hand pick subprime mortgages within an otherwise AAA rated CDO. Paulson & Company, knowing the low credit quality of the mortgage portfolio, set out to short this specific CDO, benefitting from the failure of the mortgage portfolio. It appears that Goldman may have been aware of Paulson's intentions to short this CDO. Meanwhile, Goldman sold the CDO to its own investors with inadequate disclosures and Goldman clients ended up losing at least one billion dollars on the deal. Goldman shares are down $25 or 13% on the news and the stock market, led by the financial sector, is down about 1.75% in symapthy.
In July of last year, Rolling Stone columnist Matt Taibbi wrote an intriguing piece on Goldman Sachs titled "Inside the Great American Bubble Machine" and accused Goldman Sachs of acting like the "Wall Street Bubble Mafia". Taibbi's article wrote of a culture at Goldman that makes today's allegations seem quite plausable. If you have not read the Taibbi piece already, I have a provided a link here:
http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine
Kudos to Taibbi for taking on Goldman Sachs. Now it's the SEC's turn.